Promoters in a Company – 1


Before 2013 there was no legal position related to promoters were defined in the Old Version of the Act of 1956. In the Old Act, the subscriber to the M.O.A was regarded as the promoters since they had subscribed to the company from its inception.


‘Promotion’ may be a term of wide import denoting the preliminary steps taken for the aim of registration and flotation of the corporate . And the persons who assume the task of promotion are called ‘Promoters’. A promoter may be individual, syndicate, association, partner or company.When an individual has an idea for a new business venture, he or she may set about interesting others in the venture and persuade them to contribute capital to a corporation to be incorporate for the aim of carrying on the venture. The individual will then be described as ‘promoter’ of the corporate . A person who acts during a professional capacity isn’t a promoter. A company is born only it’s duly incorporated. For incorporating a corporation various documents are to be prepared and other formalities are to be complied with. All this work is done by promoters.

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Section 2(69) of the Companies Act, 2013 defines that Promoter is one:

i. whose name have been mention in prospectus or in annual return

ii. who has control over the affairs of the company directly or indirectly whether as shareholders, director or otherwise.

iii. In accordance with whose advice, directions or instructions the Board of director is familiar with act.

Provided that nothing in sub-clause (c) shall apply to an individual who is acting merely during a professional capacity. This definition is a result of various regulations of SEBI and judicial decisions. A person cannot however, become a promoter merely because he signs the memorandum as a subscriber for one or more shares.


A promoter does a variety of activities comprising the following:

i. Conceiving the scheme of forming co./suitable company for the business

ii. Assembling the required number of subscribers;

iii. .Applying for Corporate Identity Number (CIN), Global Location Number (GLN) & PAN/TAN to relevant authorities;

iv. Getting documents of company i.e. Articles and Memorandum prepared, executed and registered;

v. Finding bankers, brokers and legal advisors;

vi. Preparation and circulation of prospectus;

vii. Raising capital via Initial Public Offering (IPO), private placement, debenture or public deposits or external commercial borrowing;

viii. Vetting and due compliance of laws and regulations relating to corporate financing and disclosures via annual and periodic returns to Registrar of Companies, Regional Directors, SEBI, Ministry of Corporate Affairs, Foreign Investment Promotion Board, Serious Fraud Investigation Office and Reserve Bank of India.

ix. Settling the terms and conditions of pre-incorporation agreements


Promoters are deeply involved in incorporation process of company so a pertinent question arises that what’s the legal position of the promoters within the company. Promoters aren’t agents as before incorporation the corporate is non est (does not exist) within the eye of law so there are often no principal. They are also not trustees, as company is not a beneficiary. They are in fiduciary capacity as in Erlanger v. New Somrero phosphate co. Ltd Cairns LJ said that, “The promoters undoubtedly substitute a fiduciary position. They have in their hand the creation and moulding of the corporate . They have the facility of defining how and when and in what shape and under whose supervision it shall are available to existence and start to act as a trading corporation.”

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